Beruflich Dokumente
Kultur Dokumente
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For its on-going future, Hong Kong needs to be seen as one of the future Hubs of
FinTech. Currently it has pride of place with London and New York as one of the major
and critical financial services hubs globally and regionally.
But we live in disruptive times, London has started to become one of, if not the leading
stars in the FinTech space. Hong Kong needs to work closely with London and New
York to re-position itself. We are seeing signs of this. Hong Kong has a history of
reinventing itself and becoming a major player in what it chooses to do. The
government, as well as the broader community has started to recognise this.
There is a growing and now vibrant start-up and entrepreneurial community. Angel,
venture capital, private equity and other investors are starting to take stock of what is
happening in Hong Kong. It is still early days, but it bodes well for the future if Hong
Kong can continue to provide energy and passion to growing this future platform for
transformation and change.
FinTech companies are drawn to places where big financial services clients
are located and headquartered. Hong Kong is a key financial centre for
Asia and the world. While it has been trending upwards in all sectors,
Hong Kong is rated most highly in investment management and banking.
Egidio Zarrella
Clients and Innovation Partner, KPMG China
Scott Thiel
Partner, DLA Piper
Hong Kong is a major financial centre due to its strategic location, diverse
talent and its favorable business environment where rule of law governs
the conduct of commerce.
Managing Director, Region Head Asia, Financial & Risk, Thomson Reuters
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Contents
Executive summary
FinTech defined
Case studies
11
Sponsors
Disruption ahead?
13
Opportunities
15
20
Challenges
27
Next steps
28
32
DLA Piper
KPMG
Thomson Reuters
Views
Bitspark
DBS-Nest Accelerator
Faculty of Law, University of HK
FinTech HK
Grow VC Group
HSBC
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Executive summary
Hong Kong has all the ingredients necessary to be a global centre of FinTech innovation and growth
Driving the city forward are its traditions of business and commerce:
Hong Kongs long history as a banking and finance hub, its affluent and increasingly well-educated
population and tradition of entrepreneurship provide a secure foundation for FinTech development.
Investment by both the government and the private sector in business start-up, incubation and accelerator
facilities is encouraging new firms to establish themselves and test new ideas. Scaling businesses,
however, can be hard due to the citys high rents and relatively small labour force.
The establishment of alternative financial services such as peer-to-peer lending, equity crowd-funding and
innovative ways of making loans and investment available to small businesses are already creating a viable
FinTech eco-system across the city.
Source: Economist.com
Wealth management, data analytics and crypto-currencies, particularly for remittances, are other FinTech
sectors with potential for fast growth in Hong Kong.
Hong Kongs positioning as a gateway to China also offers advantages for the wider Chinese market:
Chinese FinTech businesses, especially those nurtured by the country's e-commerce giants Alibaba and
Tencent, and smartphone leader Xiaomi, could emerge as major payments and transaction players
threatening the rise of local businesses in these areas.
Offsetting this threat, China also offers pools of developer talent, back-office services and, especially in the
financial centres of Shanghai and Shenzhen, markets for Hong Kong FinTech businesses to sell into.
Although advances are being made, further work is needed to gain the maximum benefit:
Although Hong Kong already has much financial talent, developing a successful FinTech sector will require
support in developing a bigger pool not just of IT staff but also of creative thinkers. To complement the
citys already strong maths and science education, officials now need to think more about ways of
encouraging stronger learning in the arts and humanities.
A crucial next step will be adjusting the citys regulatory framework both to give greater clarity to
businesses looking to set up in the city and to update rules in order to bring them into line with new
business practices while continuing to offer strong investor and consumer protection.
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FinTech defined
In its broadest usage, FinTech refers to the application of IT within financial services, above all, the rise of
the internet as a means of lowering barriers both to entry and costs within the industry.
IT is the foundation for financial services and FinTech innovators are already part of the industry from currencies and financing, through payments and fund transfers, to
operations and risk management, security and data analytics (see table). These applications have opened up financial services to new entrants, among them start-ups and
businesses from other sectors who see opportunities both to displace and complement the existing institutions.
Payments &
Infrastructure
Data Security
Monetisation
Customer
Interface
Financing
Source: Douglas W. Arner and Janos Barberis, FinTech and Regulation: Recent Developments and Outlook
A growing appreciation since the global financial crisis of just how much IT can contribute to creating alternatives to many traditional ways in which financial services are provided.
On the supply side, this has led to providers of financial services be they long established or new entrants looking for new, better or more efficient ways of offering services and
products.
A sudden rise in awareness among consumers of just how much recent technological advances have opened up space for alternative services offering cheaper, more accessible
ways of managing their money, greater access to loans or credit, and better returns on their savings or other assets.
How alternative locations of investment are spearheading development both at new companies set up to target a specific FinTech service and in existing companies which have
found that the barriers previously preventing them from entering finance have disappeared.
The outcome has been the flood of investment into FinTech that took place in 2014, principally in the US, but also in Europe. Research by CB Insights suggests that worldwide FinTech
investment grew appreciably between 2008 and 2013, roughly quadrupling over that period from US$1 billion to US$4 billion. That total was dwarfed, however, by the US$12 billion
that was spent in 2014. 5
3
4
5
Douglas W. Arner and Janos Barberis, FinTechand Regulation: Recent Developments and Outlook, Asian Institute of International Financial Law, Faculty of Law, University of Hong Kong, 26 March 2015, page 4, available at
http://www.slideshare.net/FinTechHk/FinTech-regulation-by (accessed 29 May 2015)
See http://finiculture.com/defining-FinTech-the-ultimate-rorschach-test/ (accessed 15 May 2015)
See http://www.techworld.com/news/startups/global-FinTech-investments-reach-8-bn-with-europe-leading-growth-3605529/ (accessed 22 May 2015)
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
This dominance is unlikely to end. FinTech is also creating opportunities for other
locations to establish themselves as providers of financial services. In the US, the
principal alternative is Silicon Valley. In 2013, around one-third of worldwide FinTech
investment went to companies in the Valley, 11,000 people already work in the sector
there more than a quarter of the total found in New York.
9.6
Outside the US and Europe there is China home to some of the worlds biggest and
most exciting FinTech developments. Its largely under-regulated peer-to-peer lending
industry has grown almost 13-fold since 2012, reaching US$41 billion in 2014. 7
1.5
Total: US$12.2bn
By value, London and New York are FinTechs clear worldwide leaders, between them
capturing more than the 90% of FinTech investment and revenues.
The USs peer-to-peer lending industry ended 2014 in style, with initial public offerings
in December for Lending Club, the worlds leading online lender, which raised US$834
million at an almost US$9 billion valuation for the company, and OnDeck Capital, which
raised US$200 million. 6
Source: CB Insights
0.8
0.4
Between them, this pair of listings confirmed the arrival of FinTech as a major
investment opportunity.
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Alibaba, the countrys e-commerce giant, built a money-market business from nothing
to US$90 billion of assets within one year of its launch in mid-2013. At one point in
2014, it became the worlds fourth-biggest money market fund.8
8
9
10
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Its targets are those loans that banks have previously found too small to make costeffective and which small businesses found too complicated and time-consuming to
apply for. AMPs technology makes the process fast and straightforward for both
sides.
Unlike many FinTech companies, which see at least part of their mission as disrupting
existing financial models, Hong Kong-based AMP Credit Technologies seeks to work
with banks, supplying them with technology that enables them to meet the borrowing
needs of small enterprises.
Card-driven technology
Empowering banks!
Using AMPs technology platform, any business that accepts credit cards for payment
and who can demonstrate a reliable electronic cash flow is a potential customer. AMP
uses data gathered from a companys electronically verifiable cash flow and other
sources to assess both the character of the applicant business and its ability to repay.
We believe the best way to improve financial services for small businesses is to
empower banks with new technologies, says Thomas J DeLuca, the companys
CEO, adding that when it comes to small business lending, banks retain significant
competitive advantages relating to customer data and information, customer
relationships, distribution, and cost of capital.
AMP offers partners two core propositions either to use its technology platform
directly or to refer business to its direct lending subsidiary, Amplifi Capital.
Since its founding in 2010, AMP has originated more than US$55 million in
unsecured loans to small businesses in Hong Kong, Singapore, and the Philippines
among them restaurants and bars, retailers, doctors, dentists, opticians, vets,
wholesalers and e-commerce merchants. In March 2015, it established its first
venture outside Asia, launching a direct lending operation in the UK.
www.amp-creditech.com
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However, it does face rivals. KPMG has identified eight key international locations that
are fostering prosperous FinTech ecosystems, two of which are also in the Asia Pacific
region Singapore and Sydney and one of which Singapore is already widely
perceived as being ahead of Hong Kong in terms of government backing for the
sector.
For Hong Kong, this poses two challenges.
First, figuring out how best FinTech services can be aligned with its existing
advantages so as to maintain its traditional strengths in trade, payment clearing and
serving as an international platform for Chinese companies.
And second, ensuring that start-ups and other new companies deploying these
emerging technologies have the freedom to establish themselves in areas untouched
by existing financial institutions. These include bringing banking to the unbanked and
developing loan or investment products for individuals and small companies previously
too expensive for banks to offer with their existing systems.
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See The Rise of FinTech: Getting Hong Kong to lead the digital financial transition in APAC, November 2014, page 9, available at http://www.slideshare.net/FinTechHk/FinTech-hong-kong-report (accessed 19 May 2015)
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To ensure the quality of the companies on its platform, Investable has a rigorous
selection process, which includes drawing on the rich experience and due diligence
skills of Nests investment team.
Founded from Nest, Hong Kongs leading investment incubator, Investable helps
individuals discover carefully curated start-ups and invest alongside other experienced
investors.
As of May 2015, Investable had six companies raising funds on its platform. These
are mostly Hong Kong- and China-based, but include Delaware-registered
FormaFina, an online marketplace for home decor and accessories targeting
consumers in Latin America, especially in Brazil and Colombia, that already has
more than 500,000 users and annual revenue of US$4 million.
Second-stage start-ups
Investables main investment targets are early-stage technology opportunities in highgrowth-markets companies with proof of concept which have made it past the initial
start-up phase to the point where they need between US$100,000 and US$2 million to
fund their next stage of growth.
Freedom to advertise
Headed by Jennifer Carver, CIO of Nest and a Hong Kong finance industry veteran
whose experience includes asset management, investment advisory and
overseeing a string of successful internet start-ups, Investable has already built a
membership of nearly 600 registered investors on its platform, most of them
acquired by word of mouth or at demonstration days where new companies
present their businesses.
Securities and Futures Commission (SFC) regulations in Hong Kong bar investment
companies from advertising and restrict participants to professional investors,
which largely means individuals with investment portfolios of not less than HK$8
million. Carver would like to see both restrictions eased, especially for businesses
such as Investable which see themselves as essentially a technology platform.
Equity crowd-funding needs a crowd to work, she says. So most of all we
would like to be able to advertise.
www.investable.vc
Soft-launched in May 2014, and in full operation since December 2014, it connects
professional investors to the best-in-class technology start-ups through its platform,
allowing them to browse and invest in pre-vetted early-stage investment opportunities
in high-growth industries such as smart cities, FinTech, HealthTech and internet of
things.
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Disruption ahead?
According to many industry observers,
FinTech has the potential to disrupt financial
services
Perhaps the biggest market for new FinTech products and processes will be the banks
themselves. Goldman Sachss CEO Lloyd Blankfein, has repeatedly described
Goldman as a tech company, an assertion backed up by the fact that his bank has
more software engineers and programmers than Facebook possibly twice as many.12
This is not to say that new FinTech companies will not succeed, but rather that they
will be focused in areas that are currently poorly served, such as small loans or
transactions involving small sums of money and other areas where banks current
infrastructure makes them inefficient or inflexible.
What seems more likely, however, is that though change will happen across the
board, and in certain segments, such as mobile payments, major new players will
emerge. Overall FinTechs development will be about using new technologies to
change existing practices, making them more flexible and efficient within existing
institutions.
In other words and as Hong Kong is already seeing while FinTech will lead to the
transformation of the entire financial services industry over the coming years, and
likely sooner rather than later, it will see both existing institutions improving their
services and new players complementing them.
Disruption can be, should be embraced by the long established traditional financiers, cash managers such as the major banks. Banks
always face challenges associated with having to continue to invest in time-consuming, expensive and complicated upgrades to their
established systems, and this is only compounded by what the fast-moving FinTech sector is doing. However, it can be done in parallel.
Banks should also be focused on more strategic alliances, more investment capital with FinTech leading companies. For mutual benefit,
more of these alliances should be considered to draw on banks limitless experience with clients, credit and their available capital, and
on the FinTech side, their ability to get to a mass market at a much lower cost base.
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12 See for example, Blankfein: Goldman Sachs Is a Technology Firm, Bloomberg.com, 3 June 2014,
available at http://www.bloomberg.com/news/videos/b/8df546df-20d1-46e5-824b-0702e9225046 (accessed 19 May 2015) and
Jonathan Marion, Goldman is a tech company, Business Insider, 12 April 2015,
available at http://www.businessinsider.com/goldman-sachs-has-more-engineers-than-facebook-2015-4 (accessed 19 May 2015).e
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
In the first venture of internet finance technology business WeLab, the platform has
handled loan requests of nearly US$170 million in less than two years vindicating the
vision of founder Simon Loong that internet technologies can drive innovation and
rework Asias financial industry.
Faster, better
At the heart of WeLabs business stands WeDefend, a set of credit risk management
tools that analyse both traditional and unstructured credit data collected by the
company and supplied by users.
This software delivers decisions fast, taking just 15 seconds to process a loan
application that would take a bank five to seven days.
However, more important than its speed, says Loong, a former banker with Citibank
and Standard Chartered, is how WeDefends technologies are improving over time.
Developed to create new ways of generating analytical insights into consumer
behaviour and creditworthiness, WeDefend has allowed Loongs team to become
increasingly confident about their ability to gauge the creditworthiness of applicants.
As a result, approval rates have risen from 10-15% of applicants when WeLab started,
to around a quarter now.
Into China
In January 2015, WeLab completed a US$20 million round of funding from a group
of strategic and financial investors, including TOM Group, a media business owned
37% by Hutchison Whampoa and Cheung Kong, Sequoia Capital, and Russian tech
investor Yuri Milner.
That money is being used both to fund loans and develop its existing and internet
finance technology services, with small business loans among the next targets in
WeLabs sights.
WeLab has also started to establish strategic partnerships with mobile, ecommerce, and other financial companies.
Already in place are agreements with Hong Kongs Hutchison Telecom to provide
financing for subscribers to buy mobile phones through Hutchison Telecoms Three
website, and a similar arrangement with Chinese smartphone maker Coolpad to
handle purchases of its handsets in China.
www.WeLend.hk
Since mid-2013, WeLab has established a leading online lending platform, WeLend.hk
(www.WeLend.hk), disbursing loans from just under US$500 to US$65,000 to
individuals whose online profiles meet its strict criteria.
In 2014, WeLab extended its business across the border into China, launching the
countrys first fully mobile lending platform, Wolaidai (www.Wolaidai.com), offering
loans of up to just under US$1,000 to students and other young people with the rich
digital social lives that provide the data streams necessary to confirm their identity and
likelihood of repaying their borrowing.
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Opportunities I
FinTech companies look set to complement Hong
Kongs existing financial strengths
The single most important opportunity FinTech offers to Hong Kong is to maintain its
current strong position as one of the worlds leading financial centres. Over the
coming decade, its financial sector will be challenged by other locations and
developments. This period will see the continuing rise of Chinas financial sector, and
with it the rise of a host of Chinese FinTech companies or companies with FinTech
arms.
The next 10 years will also see the extension of FinTech services from banks in
London and New York, and the emergence of Silicon Valley as the home of US
FinTech companies with global reach. There will also be increasing competition from
other locations in Asia as FinTech centres Singapore or Sydney.
A range of factors among them aversion to change, regulation (banks and FinTech
business models may be subject to different compliance policies) and a view of what
constitutes their core competency (i.e. finance not technology) have hindered banks
from entering such businesses.
Consequently, rather than being viewed as changing everything, FinTech should be
viewed as an enabler that allows non-bank players to enter the market. In Hong Kong,
starting a company has always been cheap. Now, thanks to the falling price of digital
technologies, even small companies have access to powerful technologies and, thanks
to the internet, access to global networks. Both are huge incentives for innovation.
Of course, many of these new players will rely on existing financial institutions and
structures for handling transactions. However, whereas a mixture of cultural and
governance reasons prevent most existing financial institutions from moving fast, new
FinTech players have the advantage of being able to move and react nimbly as they
create streamlined applications that are more efficient than the legacy systems run by
banks.
What this points to is not existing financial institutions being displaced or new
business models taking shape, but rather the emergence of new companies serving
previously unmet needs. This development is very much reflected in the first series of
FinTech businesses being set up in Hong Kong, including the case studies in this
report - peer-to-peer lenders Monexo and Fundnel, equity crowd-funding business
Investable, small business loan enabler AMP Credit Technologies, and the various
experiments of internet finance company WeLab.
Source: IOSCO Research Department; Based on figures from selected peer-to-peer platforms within each country
Notes: 1) Peer-to-peer lending data is sourced directly from the websites of the largest providers. It therefore
represents a lower bound estimate of the global loan pool. 2) Data as at 30 September 2013
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The financial services industry is at a significant inflection point in its history public trust is at an all-time low following the fall-out
from the credit crisis and a seemingly endless wave of misconduct revelations, while large swathes of the global demographic are
turning their back on traditional banking practices and looking for a whole new experience in how they manage their finances.
This creates a huge opportunity for FinTech to transform the industry, creating new ways to address legacy problems but also
leveraging innovation to create new business opportunities.
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I have seen how the power of large organisations can change the
world in my past career at Intel. Hong Kong and Singapore are rich in
both FinTech talent and new business ambition. Lets see if Hong
Kong can capitalise on these advantages today for a brighter
tomorrow.
I think this is the start of a new trend that bridges the gaps that exist
between the complexity within large organisations and the speed
and agility of start-ups. The hunt for new business models that
maximise new consumer behaviours, such as mobile commerce,
while ensuring compliance with anti-money laundering laws and
taking advantage of cutting-edge technologies such as predictive
pricing, contextual e-commerce and just-in-time logistics are all
potential areas of growth for DBS that this external innovation search
will help accelerate.
Peter M Dingle
Opportunities II
Other opportunities for Hong Kong include crypto-currencies, data analytics and wealth
management, all of which benefit from the citys long traditions of business-friendly
regulation and free exchange of goods and money.
Peer-to-peer lending
Among the new companies emerging to take advantage of the citys already existing
financial services industry are:
Enterprise financial software firm DemystData, which raised US$5 million in funding
in 2014 to develop its business establishing credit ratings for individuals with no
credit history.
Amareos, set up in 2013, which makes analytics tools that provide news, finance and
business sentiment metrics and indicators to help businesses with their decisionmaking processes.
Priv Financial, set up in 2011, has developed wealth management software for
financial advisors that allows users to manage their customer relationships and
produce tailored investment proposals for clients.
Source:
P2P lending, OICV-IOSCO report
IOSCO Research Department; Compiled from Prosper, Lending Club, Auxmoney, Svara, Zopa, RateSetter,
Thincats, Funding Circle, ISE Pankur
Notes: 1) Peer-to-peer lending data is sourced directly from the websites of the largest providers. It therefore
represents a lower bound estimate of the global loan pool. 2) Data as at 30 September 2013.
However, whereas these businesses all offer a new twist on an old theme, more
novel and more controversial are the various digital currency companies which
have arisen in the last two years. Many of them have been set up by outsiders who
see Hong Kong as one of the worlds most welcoming jurisdictions for bitcoin
businesses.
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In March 2015, the government established a FinTech steering group to advise how
Hong Kong could become a FinTech hub. Chaired by the Secretary for Financial
Services and the Treasury, Professor K C Chan, the steering group comprises
government and regulatory officials and ten figures from business and research and
development institutions.
FinTech can enhance operational efficiency and help foster new modes of
development for the financial services industry. As an international financial centre
with a highly developed information and communication technology sector, Hong Kong
is an ideal place for developing FinTech, Chan said.
The steering groups remit includes assessing the economic and business
opportunities provided by the development of FinTech for Hong Kong, identifying the
potential and existing gaps of developing Hong Kong into a FinTech hub, and proposing
measures needed to make Hong Kong a FinTech hub.
13 Source: Unlocking the potential: The FinTech opportunity for Sydney p.94
http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Pages/FinTech-opportunity-sydney-oct-2014.aspx
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
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China's FinTech market that has grown so rapidly that China is now in the
situation where it is no longer able to rely on references to experiences from
other jurisdictions like the US or Europe. It is increasingly faced with a
market going ahead in the context of scale and technological development
than those other markets.
The last 6 months of activity gives little doubt that Hong Kong will be Asia's
leading FinTech hub. Over 20 events built awareness, 40 more start-ups are
currently demonstrating market potential, all combined with a clear increase
of investors in the EU and the US looking at Asia for opportunities. Finally,
there is China, where millions are using Alibaba's facial recognition payment,
while phone manufacturer Xiaomi has directly proposed its own financial
products. If Hong Kong places itself to capture the cross-border activities
going in and out of Asia, it can claim global leadership as a FinTech hub.
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Both borrowers and lenders must hold Hong Kong identity cards, be resident in Hong
Kong and have a Hong Kong bank account. Monexo earns its money from a 2.5%
commission from borrowers and a 1.5% commission from lenders.
Market intermediary
Given Hong Kongs regulatory structure, Monexos position as a marketplace that
matches would-be borrowers and lenders rather than as a loan originator allows it to
operate without a money lenders licence, says Bubna.
As Hong Kong has no regulations specifically covering peer-to-peer lending, the company
has adopted almost all the guidelines that the UKs Financial Conduct Authority laid down
for the sector in 2014.
As well as following local know-your-customer and anti-money laundering rules, all funds
passing through its platform are held by the Hong Kong Trust Company.
To keep compliance matters straightforward, the one group of customers it turns away is
US citizens due to the cost and complexities of complying with the USs Foreign Account
Tax Compliance Act (FATCA).
Bubna plans to extend Monexos product range to business receivables later in 2015 and
to take on new markets across Asia, with India, Singapore and South-east Asian countries
all possible targets.
www.monexo.co
Monexo, which went live in March 2015, is one of a handful of Hong Kongs
peer-to-peer lenders.
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For now, FinTech companies are advised to review the financial crime risks to which their
businesses are exposed. As more financial institutions enhance AML controls, it is
becoming increasingly challenging to launder money through their systems.
Inevitably this means that other platforms with weaker controls will be sought to
integrate proceeds from illicit activities into the general financial system.
To protect themselves from being abused for such purposes, FinTech companies should
carefully consider the financial crime risks to which they could be exposed.
Once identified, such threats should be evaluated both for their probability and against
the general risk appetite of the business.
With this intelligence, companies can then establish commensurate protection measures
and controls.
Recommendations
Regulators should review what kind of regulatory environment would best encourage the
development and growth of the FinTech sector, while ensuring that FinTech platforms
are protected from being used as vehicles for financial crimes such as money laundering
and fraud.
FinTech companies should put in place the appropriate measures to ensure that their
platforms are not used for financial crimes.
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
At HSBC, as with the worlds other large banks, executives are both aware of the
need to embrace FinTech and the difficulties they face in adopting its practices on a
major scale.
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As well as matching investors and small companies, Fundnel also wants to help
businesses test and improve their operations by opening them up to early feedback
and advice from its network of professionals, which includes lawyers, accountants,
advisors, mentors and even potential future partners.
Were not solely looking out for tech firms, but also bricks-and-mortar businesses
such as restaurants, consumer retail outlets and even music and entertainment
venues, says Sam Ng, another of Fundnels five founding partners, also a former JP
Morgan investment banker.
Fundnel also wants to help build a secondary trading market for private businesses.
People are hesitant to invest in private companies because of the scarcity of exit
solutions. A secondary market means that they can now buy and sell their stakes
without there even being a listing, says Ng.
Fundnels platform will begin closed beta testing in the third quarter of 2015. However,
its partners have already been trying out their innovative investment structures by
raising a total of US$1 million in funding from 22 individuals for a nightclub in Hong
Kongs Lan Kwai Fong bar and entertainment district.
www.fundnel.com
That process has been opaque for a long time. We want to democratise finance and
allow more people to decide for themselves and back the businesses they believe in.
Private investments, as an asset class, will now finally be accessible to everyone, he
says.
In labelling itself as a social network, Fundnel aims to encourage self-regulation
amongst its members. This means leveraging on the power of the crowd to reduce
the risk of fraudulent behaviour.
When investors find a business they like, they will sign a share purchase or
subscription agreement directly with that company. An affiliate of Fundnel has
established an investment fund to take up to a 5-10% stake in companies that fit the
investment mandate of the fund.
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2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
Challenges
Regulation fit for the digital revolution
Talent shortages
One obstacle holding Hong Kong back is the overall nature of its regulatory system, in
particular that its financial regulations are broadly based along institutional status lines
as defined by the activities undertaken by the relevant institutions such as whether it
is a bank, an insurance company, an investment advisor or an asset management
company. An institutions activities determine which laws and regulations it is subject
to and which regulator supervises its activities.
Another area which needs addressing is giving companies access to the right people.
Highly rated as Hong Kongs education system is consistently high in global rankings
some people are critical of its record at producing creative thinkers. While bankers
and others praise the citys maths talent, they generally agree that it would benefit
from producing stronger humanities graduates needed to put together the all-round
teams that usually lie behind innovative new companies, products and services.
Property challenges
Moreover, Hong Kongs financial regulations have not made provisions that specifically
cater for the FinTech sector in terms of set-up, licensing requirements, regulatory
supervision and ongoing legal and compliance obligations. FinTech start-ups with
limited legal and compliance resources often find it a challenge to navigate through
this regulatory maze, first to gain a full understanding of the legal requirements
applicable to them and then to build a compliance framework appropriate for their size
and operational model.
27
Finally, there are practical matters. Hong Kongs famously expensive property costs
are of course a major headache. A surprisingly common complaint among smaller
companies is how hard it can be to open bank accounts a problem that can largely be
attributed to a combination of increased concerns over anti-money laundering and
greater risk aversion on the part of banks.
Hong Kongs advantages also all have their downsides. Appealing as Asias
demographics are in overall numbers, the region remains very much a place of
multiple jurisdictions, each with its own legal system, financial infrastructure and
business culture. This market fragmentation restricts the scalability potential of many
FinTech businesses.
While detailed rules can provide certainty and clear standards of behaviour, and be
readily and consistently applied, a principle-based regulatory system, such as that used
in the UK, has the advantage of being broader and more flexible in terms of its overall
application. It also seems likely that such a system can also encourage creativity and a
proportionate approach to compliance suitable for the FinTech sector.
Moreover, the biggest potential market on Hong Kongs doorstep, China, is also its
most intimidating. Its internet sector is home to many hugely powerful and
competitive companies, due at least in part to it having almost no clear-cut rules
governing online financial services.
While this has allowed for the creation of the worlds third largest peer-to-peer
industry, it is a place where risks are high. In 2014, well over 10% of its nearly 2,000
peer-to-peer platforms either experienced cash problems, shut down or saw their
owners disappear. 16
Where to next?
Hong Kongs potential path to success
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2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
Next steps
Some catching up is necessary. Singapore has shown the way in developing an
entrepreneur-friendly environment which Hong Kong would do well to study.
Almost every other country in the region is ahead of the city in terms of producing
legislation for key FinTech areas such as crowd-funding.
Hong Kong could also look to the UK for guidance on how to put together a regulatory
system that combines encouragement of new businesses with protection for consumers.
Hong Kongs already strong education system can start producing arts and humanities
students that match the abilities of its maths and science talent.
The government clearly perceives the opportunities that are already emerging. Its
incubator operations run at Cyberport, by the Hong Kong Science and Technology Park
Corporation, and by the Hong Kong Design Centre, already offer a network of locations
where new companies can find support. StartmeupHK, its initiative aimed at building a
start-up community that both supports local entrepreneurs and attracts others from
around the world, is starting to gain traction in its effort to promote Hong Kong as the
right place to start a business.
FinTech is a global fast growth industry that will continue to change the nature of commerce.
Private capital is willing to invest more but has the luxury of choosing where it will deploy its
capital. For Hong Kong FinTech to attract more capital an efficient platform must be in place to
give investors the confidence to invest more and invest for the long term.
In fast growth sectors, investors may have less time to make investment decisions. Therefore, to
achieve an investment process with minimal regulatory ambiguity will be important for the Hong
Kong FinTech sector.
New Zealand
Malaysia
Thailand
Capital Market Supervisory Board notification on crowd-funding in force since May 2015
Japan
Australia
India
Securities and Exchange Board of India released a white paper on crowd funding in June 2014; consultation period has now ended
China
Trial implementation of "Measures for the Administration of Private Equity Crowd-funding" in place since Dec 2014
Singapore
Hong Kong
Sources :
New Zealand:
http://www.legislation.govt.nz/regulation/public/2014/0050/11.0/DLM5956701.html?search=sw_096be8ed80d76091_crowd+funding_25_se&p=1&sr=0
Malaysia:
http://www.sc.com.my/crowdfunding/
Thailand:
http://www.crowdfundinsider.com/2015/05/68267-the-establishment-of-equity-crowdfunding-in-thailand-the-strengthening-of-thai-smes-for-the-asean-single-market/
http://www.sec.or.th/en/Pages/News/Detail_News.aspx?tg=NEWS&lg=en&news_no=42&news_yy=2015
http://www.iflr.com/Article/3429725/Japan-Promoting-equity-crowdfunding.html
Japan:
Australia:
http://www.treasury.gov.au/~/media/Treasury/Consultations%20and%20Reviews/Consultations/2014/Crowd%20Sourced%20Equity%20Funding/Downloads/PDF/CSEF%20Discussion%20Paper.ashx
https://equitise.co.nz/blog/regulatory-considerations-for-equity-crowdfunding/
India:
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1403005615257.pdf
http://indiacorplaw.blogspot.sg/2015/03/regulating-equity-crowdfunding-in-india.html
China:
http://en.pedaily.cn/Item.aspx?id=220256
Singapore:
http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation%20Papers/Facilitating%20Securities%20Based%20Crowdfunding.pdf
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2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
4
Clarify which FinTech sectors will be
subjected to greater regulatory scrutiny by
establishing a regulatory environment that
combines consistency and certainty with
the appropriate flexibility
5
Continue to invest heavily in
education, but broadening support to
include a greater emphasis on
creative subjects, including the
humanities
6
Build further links to FinTech centres
in China, especially those emerging
in Shenzhens Qianhai services zone,
the Shanghai Free Trade Zone and in
Tianjins Binhai New Area
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2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
Further reading
The Economist, Special Report: International Banking
7 May 2015, available at http://www.economist.com/news/specialreport/21650290-financial-technology-will-make-banks-morevulnerable-and-less-profitable-it (accessed 13 May 2015)
HK FinTech, The Rise of FinTech: Getting Hong Kong to lead the
digital financial transition in APAC
November 2014, available at
http://www.slideshare.net/FinTechHk/FinTech-hong-kong-report
(accessed 19 May 2015)
OICV-IOSCO, Crowd-funding: An Infant Industry Growing Fast,
Staff Working Paper of the IOSCO Research Department
available at http://www.iosco.org/research/pdf/swp/Crowd-fundingAn-Infant-Industry-Growing-Fast.pdf
Charles Moldow, Foundation Capital. A Trillion Dollar Market
By the People, For the People: How Marketplace Lending Will
Remake Banking As We Know It
available at
https://foundationcapital.com/admin/resources/whitepapers/p2plending-print-h-v20.pdf
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2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
Scott Thiel
Andrew Weir
Partner
T +852 2103 0519
M +852 6204 8833
scott.thiel@dlapiper.com
Paul P. Chen
Egidio Zarrella
Partner
Head of Asia Corporate
T +852 2103 0808
M +1 650 644 5334
paul.chen@dlapiper.com
Joyce Chan
Rupert Chamberlain
Partner, Advisory,
Head of Private Equity, Hong Kong
T + 852 2140 2871
M + 852 9155 7794
rupert.chamberlain@kpmg.com
Partner
T +852 2103 0473
joyce.Chan@dlapiper.com
Madelaine Pilkington
Irene Chu
James Mckeogh
Partner, FinTech
T +852 2847 5018
M +852 9669 2505
james.g.mckeogh@kpmg.com
Sanjeev Chatrath
Mike Powell
James Mirfin
Paul McSheaffrey
Simon Gleave
Anson Bailey
Sebastian Leotta
Rani Kamaruddin
Director, Forensic,
AML & Sanctions Services
T +852 2140 2815
M +852 9183 1933
rani.kamaruddin@kpmg.com
Frederic Barth
Gautam Verma
33
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.
2015 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2015 Thomson Reuters. 2015 DLA Piper.